Stakeholder consultation on the CAFÉ baseline agricultural scenario The Development of Agricultural Markets over the Medium Term in the Accession Countries DG Agriculture G.2 Stakeholder consultation on the CAFÉ baseline agricultural scenario October 8, 2003

The bi-annual baseline exercise Market forecast taking into account short term developments in markets (n+2) based upon surveys and statistical data as well as the MARS system (meteorological situation, yields, planted area). Statistical, meteorological methods Medium term developments of agricultural markets based upon world market developments expected policy developments macroeconomic trends (income, population, exchange rates) price driven multi-commodity, multi-country partial equilibrium models Country coverage: the individual EU-10 and AC-2 (in the near future Turkey and countries of the Western Balkan as well) the EU-15 Rest of the world, world markets

The AC and the EU before accession: Macroeconomic conditions accession of countries still with characteristics of transition economies high income growth rates (2-3 times that of the EU-15) level of income about 50% of that of the EU-15 ongoing structural changes in the economies continuously appreciating exchange rates in real term saturated economies of the EU-15 slowly or even non-growing economies relatively stable structures in the whole economy and in the agricultural sector

The EU after accession: Macroeconomic conditions Accession of the EU-10 on May 1, 2004 Economic growth will accelerate in the EU-10 after accession: transfers from structural funds, rural development (up to 4% of the GDP); specific measures in structural funds and rural development to facilitate structural change; more dynamic economies than the EU-15 (e.g. more flexible labour markets, strong inflow of foreign direct investment, strong domestic consumption); The income gap of about 50% will decline stronger after accession The net transfers of EU-15 to the EU-10 will increase The expected strong increase of domestic consumption will be of benefit for the EU-15.

Development of GDP growth and income in the EU and the AC-10

The AC-10 and the EU before accession: Agricultural situation. In AC-10 : agriculture contribution to employment more than triple that of the EU-15 (14.4% as compared to 4.3%); similar contribution to GDP as in the EU-15; duality of agriculture (subsistence and semi-subsistence agriculture vs. market oriented agriculture); lack of infrastructure in many rural regions; strong on-going structural change of agriculture and the food industries; multi-functional agriculture has a strong social insurance component in presence of weak social security systems The EU-15 labour the scarce factor ongoing structural change

The EU after accession: Situation of agriculture in the EU-10 Significant income growth in agriculture in the EU-10 (on average 48%). Significant restructuring of agriculture in the EU-10 strong economic growth will contribute to labour shedding; better and more investment in agriculture due to improving market and income situation (single market, decoupled direct payments) improving rural infrastructure and banking systems specific instruments facilitating restructuring in rural development programmes available. Comparative advantages: crops, some vegetables, poultry Comparative disadvantages: milk, beef, pork

Driving factors of agricultural markets: Income growth in the EU-10 will be a driving factor of production for pork, poultry and eggs in the EU-25. Declining beef consumption in the EU-10 and a weak development in the EU-15 leave the market vulnerable. Pressure on prices will be a downside risk factor. World market developments for cereals and oilseeds increasingly decisive factor for market outlook. Further strengthening of the Euro might increase downside risks for competitiveness of EU agriculture. Increasing real appreciation of exchange rates in the EU-10 might increase downside risks for competitiveness of EU-10 agriculture on the single market.

Increasing meat consumption due to income growth:

The Effects of the CAP Reform on EU-10 agriculture Decoupling of direct payments for crops: will cause less inflow of additional area such as potatoes. The single farm payment will cause little differences as compared to the simplified area payment scheme. Decoupling of beef payments cause: little incentives to increase beef herd and to increase specialised beef production. Cereal market reform (rye) decrease the incentives to grow more rye on triticale and potato area. The milk reform will increase the market orientation of milk processing. Production and hygiene standards still an issue

Relatively stable cereal area in the EU-10

Declining dairy cow herd in the EU-10

Increasing pork and poultry production in AC-10

Agriculture in the EU-10: Issues and conclusions restructuring and increasing competitiveness production and hygiene standards? Addressing the needs of consumers in the EU-25 Intensification: restructuring will bring about increasing labour productivity intensification of agriculture with increasing access to capital and product markets regional and national differences in intensification (stronger in CZ, HU, SK, EE - lower in LV, LT, PL, SL, MT, CY) social role of agriculture development of rural regions as compared to urban centers